Consumer Internet Deals Fuel 11% Rise In 2010 Venture Funding

Reversing a two-year decline and fueled by consumer Internet deals, venture capital investment rose 11% in 2010 but remained well below the level of 2007, before the global financial crisis.

Dow Jones VentureSource

U.S.-based venture-backed companies raised $26.25 billion last year versus $23.56 billion in 2009, according to Dow Jones VentureSource. In 2007, the total was $33.94 billion, the highest since the tech bubble deflated a decade ago.

But the increase came in a year when venture capital fund raising declined, dropping 14% to $11.6 billion, the lowest level since 2003, according to Dow Jones LP Source. Although some of the equity investments in venture companies comes from corporations and private equity firms, the slow pace of fund raising will limit venture investment, which some people predict will improve returns.

Along with investment, the number of financings rose in 2010. VentureSource recorded 2,799 deals, up 6% from 2009. VentureSource and LP Source are owned by Dow Jones & Co., the publisher of this newsletter.

Fewer deals closed in the final three months of last year than in the final quarter of 2009 – 735 versus 782. The amount invested, however, was higher – $7.6 billion compared with $7.2 billion.

New Enterprise Associates, one of the largest and most active venture firms, doesn’t expect its investment pace to change in 2011, Peter Barris, the firm’s managing general partner, said in an email. “My personal observation, however, is that liquidity is improving in the market overall and I expect that we will see an uplift on both the ‘money in’ side of the equation as well as the ‘money out’ side,” he said.

There were some huge rounds for companies in the fourth quarter, including $500 million for Facebook Inc. Groupon Inc. said it raised $950 million, but a large share of that went to buy shares from Groupon employees and investors as opposed to feeding the local-deal company’s growth. As a result, VentureSource recorded that round at $605 million, but that was before Groupon disclosed in a regulatory filing on Friday that the new equity actually totaled $377 million.

Both these companies are in the consumer information services sector, which showed strong growth in both deals and dollars invested. There were 368 financings in 2010 versus 292 in 2009, a 26% jump. Those deals raised $3.77 billion compared with $2.1 billion the year before, a whopping 80% increase. Later-stage consumer information services companies raised $2.7 billion, three times more than in 2009.

But despite the attention-grabbing financings, 2010 median investment in consumer services-–of which consumer information services accounts for the by-far-largest share-–was steady at $3 million. The median investment in first rounds was $3 million and in later rounds $7 million, both slightly higher than 2009. The second round median investment, however, fell slightly to $3.4 million.

The median investment for all sectors fell for the third straight year to $4.5 million, compared with $5 million in 2009.

For the second year in a row, the amount of money invested in health-care companies eclipsed IT, but not by as much, as health-care companies raised less than in 2009. Health-care investment totaled $7.44 billion, down 8%. Investment in biopharmaceuticals and medical devices both fell. Information technology companies collected $7.23 billion, an increase of 7%.

The number of health-care deals also fell, to 702 from 722 in 2009. IT scored an increase, to 889 from 858. In IT’s largest segment, software, deals rose to 608 from 520.

Investment in renewable energy companies recovered somewhat with $2 billion invested compared with $1.5 billion in 2009. But the sector is hardly drawing the interest it was two years ago when renewable energy companies raised $3.8 billion.

Comments (1 of 1)

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